Running a successful business can be difficult in any industry. But in construction, where profit margins are often particularly tight, and uncontrollable factors might derail a project at any moment, getting it right can be particularly tricky.
If you’re looking to launch a new business, or bolster your profitability in an existing one, then there are a few steps you might take.
What Makes Construction so Difficult?
In construction, profit margins are tight for several reasons.
Profit margins are expressed as a percentage. The figure describes the ratio between profits and operating costs. Among the most difficult operating costs are the overheads, much of which are made from material and labour costs.
In other industries, a healthy profit margin might sit at 20-30%. In construction, however, the margin can be much narrower. Figures of 5% or less are often common.
Where market conditions are volatile, a firm might find its profits considerably affected. If the supply of a given material, like steel, is constricted, then the price of a given project might be driven up, ultimately making it unprofitable.
The Importance of Forecasting
For a construction firm to be profitable, therefore, it will need to be forward-looking. The labour and material costs of every given project will need to be accounted for when it is being costed.
If the initial estimates you deliver to would-be clients are too low, then it won’t matter how efficient your project management is. For this reason, a bid for a specific construction project should be rooted in data, rather than guesswork. Contingency planning will help you to limit the risk associated with every given project.
Investing in Quality
In the long term, construction businesses rely on quality tools and equipment. Investing in the best available tools, and having the skills necessary to maintain them, will help to ensure superior end results, which in the long term will drive up productivity.
For example, smaller contractors might invest in a quality cordless impact wrench, rather than relying on a more generalised tool like a drill. Clients will appreciate the quality of the end result, which means that the reputation of your business will ultimately be driven up.
The same might be said of the materials you use. In some cases, it might be appropriate to make compromises in order to drive down costs. In others, quality might be your sole concern.
Finances and Cash Flow
In order for your business to thrive, you’ll need to take financial matters seriously. This means keeping an eye on your cash flow, and hiring competent accountants to keep an eye on your books. This might mean outsourcing, or it might mean putting in place a dedicated finance department.
Choosing Projects and Deadline Management
In construction, taking on the wrong project at the wrong time can often make all the difference as far as profitability is concerned. Agreeing to unrealistic timeframes, similarly, can make a given project undeliverable. Again, a comprehensive review of your capabilities, prior to the submission of a bid, will help you to avoid costly mistakes.
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